After wave of violations, Reef makes some changes

Health and permitting infractions have dogged the fast-growing ghost kitchen company, which says it’s working to improve the problems.

Reef Technology’s fast growth has not been without its growing pains.

The Miami-based company operates 329 ghost kitchen units in 18 states and continues to add new restaurant partners at a rapid clip. It is backed by more than $1.5 billion in capital from firms including SoftBank and has called itself the fastest-growing restaurant company in the world. And in recent months, it has frequently found itself on the wrong side of local health inspections. 

During visits to its parking-lot-based, delivery-only food trailers, inspectors have recorded a variety of violations ranging from units operating without the right licenses to health hazards and even fires. Some of the violations have forced Reef to temporarily close locations. They have also attracted media scrutiny.

But Reef says it's increasing its focus on health and safety, updating its trailers and training materials and adding operations and safety experts to its staff. That includes the appointment in November of former Sweetgreen operations VP Amy Hom as SVP of kitchen operations.

“Reef has grown to become a category-defining leader in the virtual restaurant space, and we’ll continue to make major investments in health and safety to ensure we set the industry’s bar in this area as well,” the company said in a statement.

A wave of violations

The changes come after a litany of health violations at Reef units over the past year. The incidents range from what experts characterized as common infractions to more serious and sometimes dangerous ones.

Restaurant Business reviewed dozens of 2021 health inspection records from 10 cities where Reef operates. In at least five instances, the units in question were ordered to close, or closed voluntarily, until the problems could be fixed.

In many of the situations, Reef employees didn’t have food safety certification or couldn’t demonstrate adequate knowledge of food safety principles. Other food safety infractions were also common. A unit in Dade County, Fla., for example, received a warning and a stop sale order in September after cooked chicken was not cooled properly.  

These types of violations are not necessarily unique to Reef. Roslyn Stone, COO of food safety consultant Zero Hour Health, said the lack of food safety certification is a common violation, especially these days.

“It is challenging for restaurants to have someone certified in food safety on site in normal times and certainly more challenging in COVID and this surge,” she said in an email. “There are new and unique food safety issues and concerns as restaurants manage through the pandemic.”

But some of the health violations were serious enough that units were forced to close to correct them. Two units in Philadelphia closed, in August and October, after inspectors found health hazards such as flies on prep surfaces, improperly stored oil and hydrocortisone cream on a sink. The August inspection alone found 21 violations. 

These types of closures “are not unheard of, but are still rare,” said James Garrow, communications director for the Philadelphia Department of Health, in an email. 

Other violations relate to Reef’s mobile kitchen model, which is a cross between a brick-and-mortar restaurant and a food truck. Its trailers, or kitchen vessels, set up in parking lots in densely populated areas and act as delivery hubs for one or more restaurant brands. Though the trailers can be moved, they are not designed to relocate daily, like food trucks are. That has caused problems in some cities that require food trucks to return to a commissary, a kind of home base where operators can park overnight and service their vehicles.

A unit in Los Angeles County that was categorized as a food truck received multiple violations in September tied to the fact that the trailer “never moves,” per the employee on site. The unit was ordered to use an approved commissary for storage, cleaning and maintenance, and its permit was temporarily suspended.

Permitting issues have also led to closures in New York City, Houston and other cities. The company said it is continuing to work with officials in those places to create a licensing framework for its model that’s distinct from food trucks.

There has also been a pattern of fires at Reef units. Fireballs have erupted from propane stoves on at least three occasions, in some cases injuring employees, the Wall Street Journal reported. In April, a fire broke out at a location in Boston after an aerosol can got too close to a heat source and exploded, according to city records. The unit voluntarily closed.

Safety and operations changes

In a statement, a Reef spokesperson said the company is “proud of our record on health and safety and continue[s] to invest in our programs to ensure we are best in class.”

Those investments include the installation of propane sensors in all of its units to guard against fires. It has also updated its independent third-party audits and its training materials, and has added three operations and safety roles to the team being led by Hom, the spokesperson said.

While its mobile units remain in regulatory limbo in some markets, it is continuing to grow its brick-and-mortar ghost kitchen business, a more traditional format that does not fall into as much of a permitting gray area. 

“When we’ve stumbled, we’ve succeeded in learning, adapting, and improving as we’ll continue to do,” the company said. “We welcome the scrutiny that comes with being a market leader because it helps us continue to improve.”

Growth continues

As that scrutiny increased over the past few months, Reef continued to add restaurant brands that plan to launch hundreds of locations with the company. This week alone, Denny’s, Hooters of America and Benihana revealed in presentations at the ICR conference that they plan to work with Reef, joining existing partners like Wendy’s and Burger King. Reef said it will launch 34 new brands in the first quarter.

That said, with just over 400 locations worldwide, Reef fell well short of its goal to have “thousands” of units in operation by the end of 2021. This week, it confirmed that it had temporarily closed about 100 U.S. locations to convert them to different brands. 

"Coming off the most successful quarter in our history, we are reviewing and refining our operations as is customary for any growing business," a spokesperson said. "It is precisely the point of our dynamic business model to match supply and demand with new brands, features and locations. In the first quarter we have 34 new major brands launching which require new equipment, training, and sometimes new locations."

The news was first reported by Business Insider.

At least one brand ended its agreement with the company amid the recent issues. Fuku, the fried chicken concept created by David Chang, has since opened ghost kitchens with Kitchen United. Fuku did not respond to multiple requests for information about why it left Reef.

Restaurant Business contacted a number of Reef partners to ask whether they planned to continue working with the company. Most did not respond. Those that did had good things to say about Reef.

“Our experience so far has been very positive,” said Tommy Lee, CEO of 800 Degrees Pizza, which plans to open 500 Reef locations over the next five years. “We are getting great responses from our guests as well.

“I have read all the stories, but we don’t have any first-hand knowledge of those issues, so can’t speak to them.”

Robert Earl, whose virtual brand MrBeast Burger is one of the most popular in Reef’s system, said his experience has been good and that he plans to continue to work with the company.

“You’re in a space that’s enduring rapid growth, and rapid growth does lead to growing pains,” he said. “I think they’re responding really quickly.”

EDITOR'S NOTE: This story was updated to include information about the temporary closures of about 100 Reef locations.

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